Aside from the prototypical business format franchising, represented by brands such as Subway, Supercuts, and Hampton Hotels, small business owners have three other ways to expand their marketing distribution channels.
The proven co-op model has become more popular over the past decade. Unlike a franchise, where a brand company creates rules and procedures for franchisees to follow, co-op member companies collectively decide how the business is operated for the common needs and goals of the members. Each member company has a stake in ensuring success for the co-op as a whole.
There are a number of well-known retail chains which are often mistaken for traditional franchises that actually operate as co-ops, including Ace Hardware and True Value hardware. Cooperatives are also common in the healthcare, retail, agricultural, art, and restaurant industries.
If you sell your product through a direct sales force, consider setting up a distributor network to widen your market. A distributor will leverage your brand and trademark to sell your product, but usually has more leeway in how they run the business compared with a franchise arrangement. A distributor has one-on-one contractual relationships with suppliers of their choice and the opportunity to buy in bulk, and can do business with many different companies, rather than being limited to a specific franchisor-controlled network.
Generally, distributors don’t expect training or full-time operational support. So your involvement can be much more limited than with a franchise agreement. A few popular distributorships include Amway, Pepperidge Farm, and Herbalife.
In a licensing arrangement, a licensee pays for the rights to use your trademark. Unlike the control you would have over a franchise, your licensees run their businesses independently. You, as the licensor, collect royalties and supervise the use of the license but you don’t influence the operation of the business.
Licensees can choose their own suppliers and establish their own operational procedures, and pick locations and markets in which to operate. Examples of licensors include Apple Computer, Canon Inc., and Woolmark.